Israel’s transportation infrastructure is far behind that of similarly sized countries. Closing the gaps will require much greater investment than the country is currently allocating.

Whether the focus is productivity, income inequality, housing, or a host of other serious challenges facing Israel, one common underlying theme is the very problematic condition of Israel’s basic physical and human capital infrastructures. In the Taub Center’s new State of the Nation Report 2011-2012, Taub Center Executive Director, Prof. Dan Ben-David, highlights some of the particular problems of Israel’s transportation infrastructure.

Economic growth is vitally dependent on the transportation system to move workers and goods throughout the country. Yet Israel’s current infrastructure is clearly inadequate to meet the needs of future growth.

The first graph provides a glimpse of the seriousness of the situation, showing the striking contrast between heavy congestion on the roads and the paucity of vehicles per capita. The bar on the left shows that Israel’s roads are already far more congested than those in other Western countries – over two and a half times the OECD average, while only one OECD country, South Korea, has more crowded roads. It follows that even given the current number of vehicles in Israel, development of the country’s road infrastructure will require massive investment to bring it to developed world levels. The bar on the right shows that Israel also has an unusually low number of vehicles per capita. As living standards rise in Israel, it can be expected that the demand for automobiles will increase as well, making the existing infrastructure even more inadequate in the coming years.

In fact, the situation is even worse than that portrayed in the figure, due to the relative lack of rail infrastructure in Israel. Since rail transport is much more developed in most of the other OECD countries, there are more alternatives to cars and trucks in those countries. The scarcity of rail alternatives in Israel means that as economic development approaches OECD levels, it is not unreasonable to assume that Israelis will rely even more heavily on their automobiles than is common in other Western countries with rail alternatives. Recent history supports this supposition. Ben-David shows that from 1990 to 2008, the increase in the number of vehicles in Israel is far greater than in other comparable countries – and Israel is still playing catch-up.

Since some OECD countries are quite large, with huge expanses of land requiring extensive road and rail coverage, it is hard to compare them to Israel. The second figure compares Israel to a more relevant benchmark group of Western European countries: the small developed countries of the OECD. This graph shows that each of these countries has at least twice as much road coverage as a fraction of total area; three and a half times as many kilometers traveled by rail per person; and, at least four times as much use of freight railway.

In recent years, Israeli governments have finally begun a concerted effort to rectify this problem. However, as Ben-David shows in the State of the Nation Report 2011-2012, even with the much larger infusion of resources into the country’s transportation infrastructure – a very large part of it from private sources – the national expenditure (i.e., public and private together) is still not at levels that are sufficient to close the existing gaps. On average, Israeli investment in roads has fallen below the OECD average in recent years while the investment in rail has been only slightly higher than that in the OECD. Since most of the road and rail infrastructure in the OECD has already been built, this means that most of their expenditure goes toward maintenance rather than first-time construction. Therefore, the recent level of Israeli investment in these important transportation infrastructures is insufficient to close the gaps that currently exist.

Given the vital importance of transportation for economic development, the current inadequate state and insufficient investment in Israel’s transportation infrastructure is shaping up to be a major bottleneck for Israel’s continued economic growth.